One of the most difficult aspects of using assessment lies in gaining an understanding of the various pricing models associated with it. This understanding is critical when it comes time to budget for an assessment program. Even if your organization has experience using assessment, budgeting can be a very difficult issue.
Budgeting for assessment can be hard because of the following:
- Lack of understanding with assessment and its value proposition.
- Purse strings that are often owned by different groups within HR.
- General inexperience with assessment pricing models.
- Lack of understanding around price differences for off-the-shelf vs. customized assessments.
- The increasing commoditization of assessment via integration into other staffing tools.
- Lack of good benchmarking data.
- Extreme variation in assessment pricing.
The remainder of this article provides some basic information that I hope will shed a bit of light on assessment-related budgetary concerns. What this article does not do is provide specific benchmarking information that will allow you to magically understand how much you should budget for using assessment.
Consumers of assessment understand some general rules about assessment and pricing:
- The more customized the assessment content, the higher the up-front cost. Once up and running with customized assessment, however, the actual costs of testing often will not differ. The cost is in the investment required to create the customized content. Customized content often provides incrementally higher levels of ROI, so the extra investment is often worth it.
- The technology level offered by a vendor does not necessarily impact price. Many companies now offer assessment delivery platforms that are robust and have a variety of candidate-management features built in. These systems can be configured very quickly and easily. However, the more custom-technology-related work required to implement the system (i.e., applicant-tracking-system integration, customized reporting) the higher the price. These jumps can be steep when one starts getting into ATS integrations and the like.
- Just as the assessment market is extremely fragmented, assessment pricing is all over the map and price is not a reliable index of assessment quality.
- Assessment is getting cheaper as it becomes more integrated into the bigger picture as a value-add to staffing processes and the systems used to back them.
- At the same time prices are dropping, quality is actually increasing in many cases, due to the accelerated wisdom that is being gained via the ability to collect and analyze previously unthinkable amounts of data.
With the above in mind, there are three key areas of best practices related to the use of assessment impact pricing models.
Area 1: Setting Up the System
There are two key factors related to set up: doing the work required to understand key job requirements and technology system configuration.
The work needed to verify that the assessment content is job-related and the set up of the technology system are often inexorably linked, such that there is one “set up fee” that includes all the work needed to get the assessment process up and running. For example, using an off-the-shelf test from a vendor with a modern, robust candidate management system is getting to be less and less expensive. Set-up fees for this type of package usually range from $1,500 to $5,000.
As the complexity of the implementation goes up, these fees can often rise sharply. First is the level of technology integration required, with deeper implementation requiring much deeper pockets. Second is the level of due diligence related to understanding key job requirements.
If a full job analysis is required, you may pay north of $10,000, depending on the scope of the initiative. Conversely, using an off-the-shelf tool can be extremely cheap. Just remember that you get what you pay for and that taking the time to do a more in-depth job analysis can have tremendous value because it contributes to legal defensibility and also serves as a critical foundation for a variety of other HR activities.
Area 2: Assessing Applicants
This area involves charging for the test content or for the use of a system that collects a variety of different types of predictive data from applicants. There are a variety of different models related to test/system usage. Understanding them is critical when working on setting assessment budget.
The most common models include:
- Traditional-“test-centric” model. This is a flat per-head charge for any assessment used. Prices almost always follow a volume model such that the more units used, the lower the price. There is a huge range in per-test pricing with the cheapest tests now running at about $5 per head all the way to over $150 per head. The main variables are the number of tests and job level for which the assessment will be used. For instance, a test for entry-level retail workers will be much less expensive than a test for marketing managers. There is not always a direct correlation between price of an assessment and its quality, so be careful when considering this type of pricing.
- “Per-recommended” model. Because companies with more evolved technology systems often offer a multiple hurdle approach that involves the collection of data at various stages in the hiring process, many customers are wary of paying per click when there is high applicant volume and many applicants are screened out at the first step in the process. This has led many companies to create a variation of the per-head model in which charges occur only when candidates clear the first hurdle or for those who are judged as acceptable.
- Per-seat-license model. Some companies price their assessment based on the number of employees. This model is most common among vendors that sell packaged software systems and is often calculated to provide a price point for yearly use of the system
- Flat-fee-license model. Some companies offer a flat-fee model, an agreed-upon price for unlimited applicant evaluation. In many cases this model includes a threshold value such that over usage causes some additional fees.
- Pay-for-performance model. Some companies will offer a variation of any of the above models in which there is a service level agreement put into place regarding the level at which the use of assessment will return a return on investment. This model is rare but it is an excellent way to hold vendors accountable. It also serves as a quality filter when choosing assessment vendors because it takes confidence in one’s product and process to offer this kind of model.
- Combo model. It is common to encounter some combination of the above models. This is especially true as assessment becomes more tightly integrated into different types of human capital management systems and processes.
Area 3: Evaluating Assessment Accuracy/ROI
This involves the work done to “close the loop” and evaluate the effectiveness of the assessment used. Unfortunately, this area is often not a concern for many organizations because they do not take the time to do this type of work.
This may be one of the biggest mistakes when it comes to budgeting, because evaluating assessment ROI is the only way to demonstrate that the use of assessment is paying for itself.
Such demonstrations are critical for understanding budgeting and for providing the ability to obtain more budget for the continued usage of assessment.
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There are two types of charges that relate to evaluating assessment:
- Configuring reporting. These costs can vary quite a bit, but most technology platforms have accounted for most of the major types of reports that one would need. This means that reporting costs are often not a big deal.
- Validation. This usually requires professional services to set up data collection, analyze data, and report findings. One can expect to pay between $10,000 and $25,000 or more for this work, depending on the depth of evaluation work required. While this may seem expensive, remember that validation pulls double duty because it provides legal defensibility and proof of ROI. Further, the increasing integration of technology into hiring is leading to a business intelligence mindset that is causing feedback loops to become increasingly automated and thus allowing for savings when it comes to professional services.
In general, the trend in assessment is moving toward commoditization. Prices are dropping because assessment is getting easier to use off the shelf and is becoming more tightly integrated into other staffing-related products such as job boards and applicant tracking systems. This is good news for many folks because it also supports availability of quality assessment to the middle market, where it was not previously affordable.
In days of yore, assessment came in two basic flavors: direct off-the-shelf or highly customized. In both cases, the revenue was related to the professional services required to ensure the assessment was properly configured, created, and evaluated.
In most cases, each local assessment implementation was customized and was costly due to the sheer volume of work that was required to set up, maintain, and evaluate the assessment process. The good news is that technology has allowed us to move toward models that involve fewer professional services while allowing for increasingly higher quality assessment content.
While reduction in professional services can be a good thing, just remember that you get what you pay for and that using a system directly off the shelf is likely to yield less-accurate results than creating an optimized assessment.
One of the other new trends that helps to bridge the gap between off the shelf and customized assessment is what I call “light customization.” This involves the use of standard “blocks” of content that can be stacked to help optimize the relevance of assessment without requiring the development of fully customized content.
I feel that this offers the best compromise between optimal configuration and quick implementation. This type of system is usually much cheaper than the old model for assessment while often delivering almost equal results.
The final answer of how much one should budget for the use of assessment is, “it depends.” I wish I could provide some hard-and-fast guidelines, but costs for assessments depend on a multitude of factors including how much customization you need; the level of technology required; the level of job you are assessing for; the applicant volume you plan to experience; and the level of follow-up evaluation you plan to use.
Do not skip out on the proper evaluation of assessment, even if it does add extra cost. Evaluation is critical because this is a central part of understanding ROI and provides the data needed to build a business case for the use of assessment tools.
Once you have implemented and evaluated an assessment process, you will have a much better starting point for the development of next year’s budget. Live and learn.